This newsletter is a regular update to all our IP, solicitor and barrister contacts. It contains changes to our growing team, updates on the Manolete business model which we hope will be helpful to you, as well as key judgments and articles of interest.

 

 

The 16th century French philosophe and essayist, Michel de Montaigne, was acutely aware of the limits of the law:

 

 

Law making, in his view, was unequal to the task of predicting and thus providing for the infinite range of possible human behaviour. He knew about law in practice and was sceptical about that too: he worked at the Chambre des Enquêtes, the Court of Inquiry, and suffered from a healthy degree of self-doubt, often asking himself, “Que sçay-je?” (“What do I know?”) But legislation cannot be avoided, and decisions have to be made about what that legislation means and how to apply it in individual cases and in the light of all the arguments that lawyers are paid to think up to enforce it or avoid it according to their clients’ best interests.

 

By and large, our system of government copes well with the legislative process, and our courts do a good job of supporting and clarifying the product of that process: judges, by and large, know what to do, even when they share Montaigne’s laudable ability to question themselves.

 

We have come a long way since Montaigne was writing. Recent developments in this country (and the rest of Europe too) demonstrate the truth of that. In late March of this year the Insolvency Service announced that the government was intending to introduce reforms to the insolvency law to help companies through the current economic crisis. It took just three months to introduce the Corporate Insolvency and Governance Act which, by and large, appears to be working well.

 

One can carp about the emphasis on companies and the failure to provide relief for individuals facing insolvency, but one must recognise that help has come for individuals too, those facing possession claims, and for the self-employed in the form of the income support scheme. The courts have not been slow to respond to the legislative changes, whether temporary or more permanent in their intended use: see the judgments in Re a Company (Injunction To Restrain Presentation of Petition) [2020] EWHC 1406 (Ch), Re A Company (Application To Restrain Advertisement) [2020] EWHC 1551 (Ch) and the two Re Virgin Atlantic Airways Ltd scheme decisions.

 

The infrastructure of the civil courts adapted quickly to online working (the criminal jurisdiction has, understandable, not done so well), while barristers, solicitors and insolvency practitioners are working effectively from home; mediations continue to be conducted, albeit often remotely.

 

The economic impact of the recent Covid pandemic is another matter altogether. Curiously, corporate insolvencies have decreased compared to figures for 2019, although we should not read too much into that: as the Insolvency Service notes in its Quarterly Company Insolvency Statistics, Q3 July to September 2020, “The reduction in company insolvencies compared to the same quarter last year was likely to be partly driven by Government measures put in place in response to the coronavirus (COVID 19) pandemic…”

 

Here at Manolete, we have adapted quickly too, not least because so many members of the legal team have always worked from home. The cases continue to flow in, and we expect the flow to continue as the full effects of the inevitable economic downturn begin to be felt.

 

I have no doubt that our system of law and those who work in it will rise to the challenges that will bring, demonstrating the ability to adapt and complement that has always underpinned our system of justice. All of us at Manolete are ready to work alongside that system and play our part in whatever does come next.

  

Mr Justice Snowden has recently handed down an excellent short judgment on the effect of assignment of claims when the insolvent company ceases to exist (Cage Consultants Ltd v Iqbal [2020] EWHC 2917 (Ch))

 

Section 246ZD of the Insolvency Act 1986 came into force in 2015 and permits liquidators and administrators to assign their statutory claims such as preference and transaction at an undervalue. In this case, the liquidators of TotalBrand Limited assigned their statutory claims under s.213 (fraudulent trading), s.238 (transaction at an undervalue) and s.239 (preference) outright to a third party. The liquidators subsequently dissolved TotalBrand as it had no further interest in the proceeds of the claims.

 

The defendants (one a director and one an alleged recipient of the transaction at an undervalue and preference) argued that s.246ZD cannot be exercised in a way that confers the sole entitlement to the proceeds on an assignee where the remedy sought is to make “a contribution towards company assets”. The defendants brought an application to dismiss or stay the claim on the basis that the company would have to be kept in existence or restored to the register if dissolved. This was a novel but ultimately unsuccessful argument.

 

The judgment provides a purposive analysis of section 246ZD which was inserted into the Insolvency Act 1986 by s.118 of the Small Business, Enterprise and Employment Act 2015 in order to allow office holders to assign statutory claims. The intention of the provision was to enable more claims to be brought where otherwise the liquidators or administrators would lack funds in the estate. The judgment quotes the legislative policy as evidenced by an Economic Impact Assessment by the Insolvency Service in 2014 which recommended “Subject to the terms of the assignment, the purchaser could take all the risk and bear all the cost of pursuing the prospective claim, but would stand to gain fully from potential benefits arising from the action.” [emphasis added in judgment]

 

The defendant applicants argued the ability of a liquidator to assign statutory claims was limited by the wording of the remedy in sections 213, 238 and 239 as the court was only empowered to order a contribution to the assets of the company or an order to restore the position of the company. The application further argued that s.246ZD was intended to benefit, rather than bypass, the creditors of the insolvent company.

 

The application failed for three reasons.

 

Firstly, s.246ZD specifies that the office holder can assign the right of action “including the proceeds of an action”. The terms of assignment may allow for sharing of the proceeds but it also envisages an outright assignment of the entire action and all proceeds to the assignee. Mr Justice Snowden emphasised the Insolvency Service’s recommendation where a purchaser takes all the risk and cost for the full benefits.

 

Secondly, the assignment of a claim outright does not deprive or ‘bypass’ creditors as they will receive the benefit of the price paid for the assignment.

 

Thirdly, s.246ZD requires a purposive and non-literal interpretation to allow claims to be assigned and pursued by someone other than a liquidator where those claims are stated to only be pursued by a liquidator (e.g. s.238). The defendants’ application would frustrate the clear legislative purpose of s.246ZD in which the company would have to be kept artificially alive.

 

Manolete offers flexible assignment options including the outright purchase of claims.

 

On 14 October, Manolete hosted a TMA webinar dealing with tax avoidance claims. Andrew Cawkwell, Manolete Associate Director for the North East opened the webinar and Manolete’s Nick O’Reilly moderated the session which included news and views from Geoff Carton-Kelly of FRP, Andrew Garland of the Wilkes Partnership LLP and Simon Chaplin of HMRC. Each had their own unique perspective on tax avoidance claims.

 

The webinar was a great opportunity to hear from experienced professionals who deal with all aspects of tax avoidance. Many in the profession who encounter tax avoidance struggle to understand how claims can be brought for mischief which is historic and may appear at first blush to be out of time. 

 

Claims against directors in breach of duty in relation to tax avoidance can be challenging with many potential pitfalls, but Manolete has financed many such claims resulting in significant returns to estates and to HMRC which is often the major, if not the only, creditor. Manolete funded the successful liquidator in the first case where the court considered directors’ duties in the context of tax avoidance (Ball (PV Solar Solutions Ltd) v Hughes and another [2017] EWHC 3228 (Ch). Since then, Manolete has achieved settlements on a number of assigned breach of duty claims in respect of tax avoidance ranging from £1.9m to £15m.

 

A summary of the webinar can be found on the TMA website by clicking here.